Is Tranzyme A Takeover Target For Bristol-Myers Squibb?

Tranzyme Pharma is a late-stage biopharmaceutical company developing novel small molecule drugs to address chronic upper gastrointestinal and other disorders with high unmet medical need.

History of Tranzyme

On November 15th 2012, Tranzyme Pharma (TZYM) announced top-line results of the preliminary analysis of the first of two Phase 2b trials assessing the safety and efficacy of its oral ghrelin agonist, TZP-102 in diabetic patients with gastroparesis. The results, which evaluated patients who were given a single daily dose of 10 mg of TZP-102, 20 mg of TZP-102 or placebo for 12 weeks indicate the trial did not meet its primary efficacy endpoint.

Oh oh, investors lost a ton of money. Share price went from $3.97 to $0.95 that day. On the bright side, this was only the first of the two Phase 2b trials right? The second trial had a dosing of three times a day. Could this make a difference?

On December 17th, Tranzyme Pharma today announced it is discontinuing and immediately ending patient enrollment in DIGEST, a Phase 2b trial in diabetic patients receiving TZP-102 for the management of symptoms of gastroparesis, due to insufficient efficacy. The decision followed a planned interim futility analysis, which examined patients' responsiveness to thrice daily oral dosing of 10mg of TZP-102 or placebo at the end of weeks 4 and 8 of a 12 week trial. The results are consistent with the findings of a prior Phase 2b trial in that there was a very large placebo effect and no treatment effect.

Ouch, share price went from around $0.78 to around $0.58 on that news.

So what is left of Tranzyme?

As you can see on the graph below, all is not lost. You can scratch out TZP-102 for the treatment of Diabetic Gastroparesis. So, they have TZP-102 for other Chronic GI Motility Disorders, TZP-201 for Chemotherapy-Diarrhea (CID) and TZP-301 for Metabolic Diseases.

(click to enlarge)

-Two additional pre-clinical compounds are advancing in development: TZP-201, a motilin antagonist for the treatment of moderate-to-severe diarrhea, and TZP-301, a ghrelin antagonist for the treatment of metabolic diseases but will not be a factor for years to come.

-TZP-102 can and will be developed further for other GI disorders.. Hopefully, for the indication of treatment of Paralytic Ileus. Where there is currently no indicated treatment, which would make it a billion dollar drug.

MATCH™ (Macrocyclic Template Chemistry) is Tranzyme's proprietary drug discovery and medicinal chemistry technology. Tranzyme has successfully used this chemistry technology to produce several developmental and clinical stage drug candidates. With MATCH™, for the first time, the construction of synthetic libraries of drug-like, orally administered macrocyclic compounds can be conducted in a highly predictable and efficient manner. MATCH™ is a chemistry breakthrough with broad application to accelerate drug discovery.

So, in laymen terms, this technology makes drugs easier and faster to develop. Also, you can modify already existing chemical compounds into different compositions. Possibly into a new blockbuster drug. There is very big potential with MATCH.

Tranzyme Buyout Target

Their technology is very valuable. It would make sense for BMY to buy out Tranzyme before paying them the $80 million per target as it would be cheaper.

Outstanding shares are 27,600,437 with a share price of $0.60 per share. Therefore, it would only cost just over $17 million to buy (not including a premium, of course).

Conclusion

The company has around $42 million in cash. So, that would give it a cash value of $0.71 per share and a book value of $0.68 a share. The value of the MATCH technology is not reflected in this. (Current market capitalization of under 17 million.)

Tranzyme deserve a share price of $1.50 minimum as there is high probability that they will be bought out. It could be one of your biggest winners for 2013.

Disclosure: I am long TZYM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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